The fact that Guinness could have thought merging with Grand Metropolitan even remotely possible, let alone desirable, is just the latest evidence of sickness at the heart of our big companies. Have Guinness, and its beleaguered chairman, Tony Greener, taken leave of their senses? What could Britain possibly have to gain by allowing its two main liquor companies to merge, apart, that is, from a bit of short-lived shareholder value for investors in Guinness? Even that is questionable enough, and yet Guinness allowed this ludicrous idea to reach the stage of fully-fledged proposals from its lead City adviser, Lazard Brothers. Now, of course it is the case that fee-hungry merchant bankers are always on the lookout for a good wheeze that might generate lucrative business. A proposal from a merchant banker doesn't amount to a plan of action for the company itself. Furthermore, all big companies dream of acquiring their main competitor. Put together the best and the second-best and what a team you would create, most executives have wildly imagined at some stage in their careers. But it doesn't work in football, nor does it work in business. Put together the best and the second-best and you generally end up with, well, the best minus the second-best. And that's if you are lucky.
Guinness would have gone through the following thought process before finally rejecting this absurd proposal. How could we possibly persuade the Government to back a merger that would give us more than half the British liquor industry? Answer: Britain needs a national liquor champion, capable of competing with the best in the world on the international stage. So what if domestic competition is harmed a bit, it will make us that much more competitive internationally.
What nonsense. Unfortunately, this has become a lamentably familiar justification for fundamentally harmful corporate empire building across a whole range of different industries. Most of us bought it to begin with, but like the connected concept of corporate globalisation, it begins to look more flawed with every deal. This is especially the case in the liquor business, where Britain is already a highly successful international player with three of the top five companies in the world. The idea that one should be allowed to take over one of the others because it has run out of ideas on what else to do could only really happen in Britain. Guinness has a very real problem of where to go from here. Its shares have underperformed by an appalling margin in recent years, not because it is an unsuccessful company, but because it has run out of steam and has no obvious way of stoking up the fire. Furthermore, it has an awkward shareholder, in the shape of Bernard Arnault of France, more keen than most to see some short- term return on his money.
But this is not the way, nor is it the way for most British companies. Long-term shareholders - and the City is meant to be full of them these days - ultimately gain very little from consolidating mergers. Managements need to be persuaded to come up with long-term objectives and targets, then they need to backed with a degree of patience and commitment that is capable of ignoring even a lengthy blip in the share price.
That's the real way forward and although it may seem like a naive dream, it's a good sight less naive than the investor who continues to think that acquisition strategy is a reasonable substitute for hard graft, vision and a proper sense of business purpose and goals.
A king's ransom at British Gas Energy
Simon Lewis, the newly named director of corporate affairs for British Gas Energy, is variously described as suave, arrogant, politically ambitious and tall, though not necessarily in that order. He is also presumably very nicely off thank you, having been tempted away from the top PR job at NatWest to join the gasmen.
With his arrival in September, British Gas will be full of more spin doctors than you can shake a stick at, though so far the weight of numbers does not seem to have helped very much. The distinction for Mr Lewis is that he will have to earn his crust since the words poisoned and chalice might have been invented for the role he is taking on.
If and when British Gas is demerged, BGE will be the poor relation to the pipeline business TransCo.
It will not make much money, it will not pay any dividends, and it may not make it into the Footsie. What it will have is pounds 40bn of liabilities in the shape of British Gas's North Sea take-or-pay contracts and a declining market share as the domestic gas business is opened to full competition from 1998. We do not know exactly what Mr Lewis will earn since he will not be on the board and his salary will not therefore be disclosable. But it is entirely appropriate that he be paid a king's ransom since, as is so often the case, the scale of his task is likely to run in inverse proportion to the prospects for the company.
Mr Lewis says he was drawn by the excitement and challenge. That either suggests he will bring to the job the sure-footedness that British Gas's PR has long cried out for or that he is labouring under a massive misapprehension.
BSkyB set to confound sceptics
Sam Chisholm at BSkyB and his alter ego at News Corp, Rupert Murdoch, are hardly the types to sit back and let the grass grow under their feet. With the original push into continental European digital television via a joint venture with Bertelsmann among others now all but dead and buried, they've hot-footed it to the competition, the Bavarian media tycoon Leo Kirch.
If all goes according to plan, and this time they are hoping it will, BSkyB ends up with 49 per cent of Kirch's digital enterprise plus an option to take 25 per cent of his sports channel, which has just clinched rights to the World Cup. No money changes hands for the time being but Sky is required to put up an unspecified proportion of the development capital. This is high-risk stuff, a bit like Sky itself in the early years, but it does demonstrate both a determination and an ability to move beyond the narrow confines of domestic franchise. Though ageing and nearly blind, Mr Kirch cuts a powerful figure on the German media scene. A close friendship and association with Chancellor Helmut Kohl makes him arguably a better ally than Bertelsmann's Michael Dornemann. BSkyB looks like confounding the sceptics yet again.Reuse content